The Two Way Street of Contracts

The worst time to learn about an overlooked problem in your company’s financial data is when you’re in the middle of bidding for a project.

Smart businesspeople can take the time to check out potential partners, vendors and suppliers, confirming those companies’ financial stability and credit histories. The last thing any company wants is to contract with a vendor that fails to deliver the goods and services it needs to fulfill contracts promptly and completely.

The problem is that many company owners, particularly growth-hungry owners of young companies, don’t realize that potential customers can conduct due diligence before making financial commitments. “Due diligence” is the process of methodically confirming the claims, track record and financial reliability of a potential business partner.

For a manufacturing business, for example, due diligence can typically involve an assessment of the management team’s depth of experience, an analysis of its manufacturing capabilities, a review of ensuring the company’s vendors are making their payments, and a look at the breadth and financial solvency of its key suppliers.

The latter aspect of due diligence can be particularly important. Tight consumer and business spending has trickled down to affect individual supplier solvency, and obtaining credit can be increasingly elusive, especially for smaller suppliers. When even one supplier fails to deliver, it reverberates through the entire chain.

A supplier unable to meet its delivery timetables because of internal financial problems can touch off a domino effect for everyone else involved in the process. The logjam may create product delivery difficulties for the manufacturer, in effect constricting its cash flow.

Leery of these risks, many manufacturers today dig deeply, acquiring sophisticated reports on the financial condition of partnering organizations. Smaller companies bidding on contracts often fail to take proper steps to ensure that the information on their financial solvency is accurate and up-to-date. Consequently, the competitor with the cleanest and most current financial data may be most likely to win the bid.

That’s why business credit files may make or break a deal. Company owners need to stay on top of this information to help ensure it remains accurate and is easily accessible. If a problem surfaces, it’s important for owners to quickly figure out how the problem emerged and how to correct the data.

“I was aware that a D-U-N-S (Data Universal Numbering System) Number and good credit was important when establishing a company,” said Billy Westbrook, founder and CEO of Scrubblade, a Temecula, California-based manufacturer of premium windshield wiper blades. (D-U-N-S is Dun & Bradstreet’s copyrighted, proprietary means of identifying business entities on a location-specific basis.)  “What I was unaware of was how immediate down the road both factors would come into play in helping us land an account with one of the largest retailers in the world.”

Managing financial reputation is part of managing growth Tweet This

As a startup in 2006, the company was in the thick of talks with a major retailer when its credit popped up as an issue. And that’s when Westbrook learned that financial data is a hidden driver of any company’s reputation.

Westbrook proactively headed off potential problems through Dun & Bradstreet’s CreditBuilder product, which gives users greater access to a company’s business credit file, unlike personal credit monitoring solutions. Users can submit positive payment experiences** and dispute inaccurate information directly from within the product, which then impact the organization’s business credit scores and rating.

Today, the company’s line of wiper blades is sold in many major retail stores, such as Costco Wholesale and Pep Boys automotive stores, as well as online through Amazon.com. “To date, one of our biggest accomplishments—landing that first big account—would not have been possible without CreditBuilder,” Westbrook said.

Managing financial reputation is part of managing growth, as Westbrook has learned. A classic entrepreneurial mistake is to partner first and evaluate after the fact. Another common misstep: disregarding due diligence altogether and ignoring the foreseeable consequences of engaging with virtually unknown business partners. Such ventures often backfire, undermining the company’s operations, employee morale and profitability.

The bottom line for all businesses is that reputation is everything. Making the most of tools that help protect and prove your company’s financial track record is a strategy that can open new opportunities for growth.

Photo Credit: reginafabros, Twenty20